No Option for 18% GST as Outdoor Catering Falls Under Mandatory 5% Entry: AAR Tamilnadu

In re Friends Catering CBE (GST AAR Tamilnadu)

Advance Ruling obtained by the applicant by fraud or suppression of material facts or misrepresentation of facts, shall render such ruling to be void ab initio in accordance with Section 104 of the Act.

The Tamil Nadu Authority for Advance Ruling (AAR) in In re Friends Catering CBE examined the applicable GST rate and classification for outdoor catering services provided in two distinct business models. The applicant, engaged in outdoor catering without providing hotel accommodation or operating from “specified premises,” supplied (i) composite catering services involving preparation, transport, and on-site serving with manpower, and (ii) supply of food prepared at its premises and delivered to customers without any on-site service or labour involvement. The applicant sought clarity on the applicable GST rate, classification, and whether it could choose between concessional and standard rates depending on input tax credit (ITC) usage.

The AAR analysed the nature of supply under the Central Goods and Services Tax Act, 2017, particularly Schedule II, which treats supply of food as a service when provided as part of a composite supply. It held that both models qualify as “composite supply” since they involve preparation and supply of food, along with elements such as transportation or service, even if delivery is at the recipient’s risk. Accordingly, both models are classified as supply of services.

The Authority further examined classification under the GST scheme and determined that the appropriate Service Accounting Code (SAC) is 996334, which covers catering services provided at events such as marriage halls, exhibitions, and other indoor or outdoor functions. It clarified that the applicant’s services fall squarely within “outdoor catering services” as defined in Notification No. 11/2017-Central Tax (Rate), as amended.

On the question of applicable GST rates, the AAR held that the services are covered under Entry 7(iv) of the notification, attracting GST at 5% (2.5% CGST + 2.5% SGST), subject to the condition that ITC is not availed. The applicant had argued that it could opt for either 5% without ITC or 18% with ITC under Entry 7(vi). However, the Authority rejected this interpretation, clarifying that Entry 7(vi) applies only to services not covered under Entries (i) to (v). Since outdoor catering services of the applicant are specifically covered under Entry 7(iv), the concessional rate is mandatory and not optional.

The AAR emphasized that the explanation to the notification makes it clear that once a service falls within Entries (ii) to (v), the prescribed concessional rate must be applied subject to conditions, and the taxpayer cannot opt for a higher rate with ITC. Therefore, the applicant cannot choose to pay GST at 18% with ITC.

The ruling also addressed the second model involving supply of food without labour or on-site service, holding that even such transactions qualify as outdoor catering services and remain taxable at 5% without ITC. The Authority concluded that both business models are uniformly taxable under the same entry and rate.

Accordingly, the AAR ruled that (i) GST at 5% without ITC is applicable to both models of supply, (ii) no option exists to pay 18% with ITC, and (iii) the applicable SAC for both supplies is 996334. The ruling reinforces that classification determines tax rate and that concessional entries, where applicable, are mandatory.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU

M/ s. Friends Catering CBE No. 172-175, Sarojini Street, Ram nagar, Coimbatore — 641 009 (hereinafter called as the “Applicant”) are registered under the GST Act with GSTIN 33AAHFF4730D1ZW. The applicant informed that they are engaged in providing outdoor catering services that do not involve hotel accommodation and are not located in any specified premises. Their services include two distinct categories of supply:

• They provide composite outdoor catering services that involve both the supply of prepared food and deployment of manpower for serving and on-site event support.
• They also undertake supply of food for occasional events where the food is prepared at their premises and delivered to the customer’s location without any involvement of labour or on-site service. The responsibility of the goods transfers at the time of dispatch or delivery, and the service does not involve any catering activity at the recipient’s premises.

2.0 The Applicant has made a payment of application fees of Rs.5,000/- each under sub rule (1) of Rule 104 of CGST Rules, 2017 and SGST Rules, 2017.

3.0 The applicant has sought advance ruling on the question on rate of GST on both the models of supply under outdoor catering services and the applicable HSN code in both the cases.

Statement of relevant facts having a bearing on. the question(s) raised.

4.1 Under Statement of relevant facts having a bearing on the question(s) raised, the applicant has stated that they are engaged in providing outdoor catering services, which include both catering and labour services; that labour services are always provided in conjunction with catering services; that they also offer catering services without any labour services, where food is prepared at their premises and subsequently transported to the recipient’s location for occasional events, at their own risk; that their catering services are primarily provided for outdoor events held at various venues such as marriage halls, exhibition halls, and other similar locations for occasional functions; that they do not provide hotel accommodation services, nor are we located in any “specified premises”.

4.2 The applicant further states that as per the amended Notification No. 11/2017-CT (Rate), Entry (iv), the supply of outdoor catering services at venues other than “specified premises” and provided by suppliers who are neither: (a) suppliers providing hotel accommodation at specified premises, nor (b) suppliers located in specified premises, is subject to GST at the rate of 2.5% CGST and 2.5% SGST, provided that no credit of input tax has been claimed on the goods and services used. to supply this service. Also, Entry (vi) of the same notification specifies that GST at the rate of 9% CGST and 9% SGST applies to “Accommodation, food, and beverage services, other than those listed in Entries (i) to (v) above,” without any restrictions on availing Input Tax Credit (ITC). The applicant further adds that the Explanation under Entry (vi) clarifies that the services covered by Entries (ii), (iii), (iv), and (v) will attract the respective GST rates prescribed for each category, subject to the conditions outlined in those entries. The applicant also includes that for the purpose of GST, the term “outdoor catering” includes services provided at venues such as exhibition halls, events, conferences, marriage halls, and other similar locations for occasional and event- based functions, whether held indoors or outdoors

Interpretation of Law by the Applicant based on the statement of facts:

5.1 On interpretation of law, the applicant has stated that their services fall within the meaning of “outdoor catering” as defined in the notification, and are carried out at premises that are not “specified premises”, by a person who does not provide hotel accommodation and is not located in specified premises. The applicant opined that Entry (iv) prescribes a concessional rate of 5% GST (2.5% CGST + 2.5% SGST), subject to the condition that ITC is not availed. It is not an unconditional mandatory rate, as the applicability is conditional upon non-availment of input tax credit and Entry (vi) provides for a GST rate of 18% (9% CGST + 9% SGST) for accommodation, food, and beverage services not falling under Entries (i) to (v), with the facility to avail ITC. Further, the applicant also added that since the concessional rate under Entry (iv) is conditional, and the standard rate under Entry (vi) is unconditional (and applies to all food and catering services not choosing or not falling under concessional categories), they interpret that the applicable HSN Code is 996334 and they have option to either (a) Pay GST at 5% without availing ITC under Entry (iv), if they choose to forgo ITC, or, (b) Pay GST at 18% with ITC under Entry (vi), if they choose to avail ITC, whether or not involving Labour services.

5.2 Prima facie, we find that the queries raised by the applicant get covered under clause (b), (d) and (e) of the Section 97(2) of the CGST Act, 2017, and as such are liable to be admitted.

5.3 The applicant is under the administrative control of State Tax Authority. The concerned Authorities of the Centre and State were addressed to report the detailed remarks and no pendency report on the questions raised by the applicant in their ARA application.

5.4 Since, no remarks have been received from the Central or State GST jurisdictional Authorities, it is construed that there are no pending proceedings against the applicant on the questions raised by them in their advance ruling application

Personal Hearing

6.1 Mr. Manoj B., Chartered Accountant appeared for the personal hearing as an authorized representative (AR) of M/s. Friends Catering CBE. The AR reiterated the submissions made in their application for advance ruling.

6.2 The AR informed that they are engaged in providing outdoor catering service under two types of supply, one of which is that they prepare the food and engage their staff and logistics to deliver and serve the food at the customers’ premises or at the event site. Another model is that they prepare food at their centralized kitchen and the customers engage their logistics and staff to deliver and serve the food. at their premises.

6.3 The Members asked whether they have any accommodation services along with the catering services and whether they have specified premises, to which the AR replied in negative. The AR reiterated that they need reply to their query regarding the rate of tax on both the models of food supply adopted by them. The Members informed the AR that mere preparation of food for outward supply is also a supply of service as per Schedule II of the CGST Act, 2017, to which the AR agreed. When the Members asked about the present tax rate adopted by the applicant, the AR replied that they tax at the rate of 18% and avail Input Tax Credit (ITC) wherever supply of food, transportation and serving is involved and tax 5% without availing ITC whenever only food is prepared without involvement of transportation or any other service. The Members also asked the AR to provide a write up on the present practice adopted by the applicant in case of both the models of supply of food along with sample copies of invoices. The AR undertook to provide the write up at the earliest.

Discussions and Findings:

7.1 We have considered the submissions made by the applicant in their application, copies of the relevant documents furnished by them, the submissions made during the personal hearing. We find that the applicant claims that they are engaged in providing outdoor catering services that do not involve hotel accommodation and are not located in any specified premises and that their services include two models of supply:

• They provide composite outdoor catering services that involve both the supply of prepared food and deployment of manpower for serving and on-site event support.
• They also undertake supply of food for occasional events where the food is prepared at their premises and delivered to the customer’s location without any involvement of labour or on-site service. The responsibility of the goods transfers at the time of dispatch or delivery, and the service does not involve any catering activity at the recipient’s premises.

7.2 Accordingly, the applicant has sought advance ruling on the question as to

1. Whether they have the option to either:

a) Pay GST at the rate of 2.5% CGST and 2.5% SGST without availing Input Tax Credit (ITC), or

b) Pay GST at the rate of 9% CGST and 9% SGST with availing ITC, as per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019, effective from 01.10.2019.

2. What is the applicable GST rate for food supply services provided for occasional events, where no labour or on-site services are involved, and the food is prepared at their own premises and transported to the recipient’s location at their own risk?

3. What is the applicable HSN Code?

7.3 The applicant is of the view that the activity undertaken by them fall within the meaning of “outdoor catering” as defined in the notification, and are carried out at premises that are not “specified premises”, by a person who does not provide hotel accommodation and is not located in specified premises. The applicant opined that Entry (iv) prescribes a concessional rate of 5% GST (2.5% CGST + 2.5% SGST), subject to the condition that ITC is not availed and Entry (vi) provides for a GST rate of 18% (9% CGST + 9% SGST) for accommodation, food, and beverage services not falling under Entries (i) to (v), with the facility to avail ITC. Further, the applicant also added that since the concessional rate under Entry (iv) is conditional, and the standard rate under Entry (vi) is unconditional (and applies to all food and catering services not choosing or not falling under concessional categories), they interpret that the applicable HSN Code is 996334 and they have option to either to pay GST at 5% without availing ITC under Entry (iv), if they choose to forgo ITC, or to pay GST at 18% with ITC under Entry (vi), if they choose to avail ITC, whether or not involving Labour services.

7.4 At this juncture, it becomes imperative to ascertain as to whether the said activity of the Applicant, constitute a supply of ‘goods’, or a supply of `service’. Schedule II to the CGST Act, 2017 lists the activities to be treated as supply of goods, or, supply of services. In this regard, we find that para. 6 of Schedule II, which discusses about ‘Composite supply’ is relevant to the issue in question, and the same is reproduced below:

“6. Composite supply: The following composite supplies shall be treated as a supply of services, namely:—

A. works contract as defined in clause (119) of Section 2; and

B. supply, by way of or as part of any service or in any other manner whatsoever, Di goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.’

7.5 Section 2 (30) of the CGST Act, 2017 defines ‘Composite Supply’ as:

“(30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration. – Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;”

7.6 The applicant prepares food at their premises and supplies it to their clients for events held at various venues such as marriage halls, exhibition halls, and other similar locations for occasional functions. The applicant adopts two models of food supply for such occasional events or functions, viz., (i) they prepare the food at their premises, along with deployment of manpower for serving and on-site event support, and (ii) the applicant prepares the food at their premises and delivers it to the customer’s location without any involvement of labour or any other on-site service.

7.7 We find that, in the first scenario, the applicant is involved in preparation, transport and serving of food to the clients for occasional outdoor or indoor events or functions. This combination of supply of goods and services are naturally bundled resulting in an overall supply of food to their clients and so, the activity undertaken by the applicant satisfy the criteria required for arriving at a composite supply. Therefore, we are of the opinion that the supply of food undertaken by the applicant forms a `composite supply’ and the same is liable to be treated as a ‘supply of service’ as laid down in clause (b) to para 6 of Schedule II to the CGST Act, 2017.

7.8 In the second scenario, the applicant prepares food at their premises and subsequently transports it to the recipient’s location for occasional events, at the customer’s own risk. Here, the applicant is involved in preparation of food as well as supporting logistically by way of arranging for transport of the prepared food, albeit at the customers’ risk. Here again, we are of the opinion that since the applicant is involved in preparation of food, and in the arrangement for transportation of food, it falls within the meaning of a ‘composite supply’ and the same is liable to be treated as a ‘supply of service’ as laid down in clause (b) to para 6 of Schedule II to the CGST Act, 2017.

7.9 Having held that both the models of supply of food adopted by the applicant amounts to ‘supply of service’, it becomes imperative to ascertain the classification of service in order to determine the taxability of the service involved. In this regard, we find that the Annexure to the Notification No.11/2017-CT(Rate) dated 28.06.2017, as amended, lists the classification of services and the extract of the relevant Chapter, Section Heading or Group, is reproduced as under :-

Annexure: Scheme of Classification of Services

As per the submissions of the applicant, they provide catering services primarily for outdoor events held at various venues such as marriage halls, exhibition halls, and other similar locations for occasional functions. Therefore, as seen from the above table, the Service Accounting Code (SAC) is 996334.

7.10 Now that the SAC of the service activity is arrived at, we proceed to determine the rate of tax on the said supply of service. The rate of tax adopted for the activity of the Applicant is as per Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, which notifies the Central Tax applicable on various services, as amended by Notification No.20/2019-Central Tax (Rate) dated 30.09.2019, is reproduced below:

7.11 The explanation given in para 4 of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No.20/2019-Central Tax (Rate) dated 30.09.2019 for Restaurant Service, Outdoor Catering Service, Hotel Accommodation Service is as follows: –

“(xxxii) ‘Restaurant service’ means supply by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied.

(xxxiii) ‘Outdoor Catering” means supply, by way of or as part of any service of goods, being food or any other article for human consumption or any drink, at Exhibition halls, Events, Conferences, Marriage Halls and other outdoor or indoor functions that are event based and occasional in nature.

(xxxiv) ‘Hotel accommodation’ means supply by way of accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes including supply of time share usage rights by way of accommodation.

7.12 From the above, the following could be deduced, i.e.,

i. Restaurant service covers only the services provided by restaurant, mess or canteen, thereby, the activity undertaken by the Applicant i.e. supply of food on occasional basis would not be covered under `restaurant service’.

ii. It is quite obvious that the service in question, will not be covered under ‘hotel accommodation service’ as the applicant is not providing any accommodation in hotels, inns, etc.

iii. The said activity of the Applicant would ideally be covered under `outdoor catering service’ as the applicant is involved in the preparation of food and delivering the same for outdoor events held at various venues such as marriage halls, exhibition halls, and other similar locations for occasional functions.

7.13 Therefore, the services carried out by the Applicant fit into the category of services covered under Si. Nos. 7(iv) of the service rate Notification No.11/2017-CT(Rate), dated 28.06.2017, as amended by Notification No.20/2019- Central Tax (Rate) dated 30.09.2019. We are therefore of the considered opinion that the activity of supply of food undertaken by the Applicant on occasional basis falls under entry No.7(iv) of the aforesaid notification, thereby attracting GST at the rate of 5% (2.5% CGST and 2.5% SGST) with a condition that credit of input tax charged on goods and services used in supplying the service has not been taken.

7.14 At this juncture, we find that the applicant contended and interpreted that since the concessional rate under Entry 7(iv) is conditional, and the standard rate under Entry (vi) is unconditional (and applies to all food and catering services not choosing or not falling under concessional categories), they have option to either to pay GST at 5% without availing ITC under Entry (iv), if they choose to forgo ITC, or to pay GST at 18% with ITC under Entry (vi), if they choose to avail. ITC, whether or not involving Labour services. In this regard, we find that the Entry No.7(vi) of the Notification No.20/ 2019-CT(Rate) dated 30.09.2019 (which amends the original service rate Notification No.11/2017-CT(Rate), dated 28.06.2017, reads as below :-

7.15 It could be seen from the above that the aforesaid entry 7(vi) which provides for tax at the rate of 9% (i.e., 18% overall including SGST), without any condition, starts with the phrase “Accommodation, food and beverage services other than (1) to (v) above”. Accordingly, having held already that the services rendered by the applicant gets covered under entry Sl.No.7(iv), the question of application of entry SI.No.7(vi) to the instant case, does not arise at all. Apart from the same, clause (a) of the Explanation appended to the said entry, clearly states that in respect of supplies covered by items (ii), (iii), (iv) and (v), central tax prescribed against them in the respective column, i.e., 2.5% (5% overall GST) shall be payable, subject to conditions specified against them, and that the same is a mandatory rate and shall not be levied at the rate as specified under this entry. It could also be seen from the other inclusive clauses of the Explanation, that they all relate to services other than the one being discussed in, the instant case, like (b) restaurant service, (c) hotel accommodation, (d) supply of ‘outdoor catering’ provided by suppliers providing ‘hotel accommodation’, (e) supply of ‘outdoor catering’ together with renting of premises, etc. It is therefore clear that the rate of 9% is applicable only in respect of specific cases, and for all the other cases, the rate specified against the respective entries becomes mandatory, and that the option to pay GST at the rate of 9% (18% overall) does not lie with the taxpayer in such cases.

8. Based on the above discussion, we rule as under:

RULING

1. (a) The applicant is required to pay tax on the supply of service involving food, at the rate of 5% (2.5% CGST and 2.5% SGST) as per Si. No. 7(iv) of the Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017, as amended, with a condition that credit of input tax charged on goods and services used in supplying the service has not been taken.

(b) The applicant does not have an option of paying GST at the rate of 9% CGST and 9% SGST, along with availment of ITC.

2. The applicable GST rate for food supply services provided for occasional events, where no labour or on-site services are involved, and the food is prepared at applicant’s premises and transported to the location at recipient’s risk, is 5% (2.5% CGST and 2.5% SGST) as per Sl. No. 7(iv) of the Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017, as amended, with a condition that credit of input tax charged on goods and services used in supplying the service has not been taken.

3. The applicable HSN Code (SAC) for both the models of supply of food carried out by the applicant is 996334.